What changes when an employer moves from a pension to a 401(k)?

A traditional pension pays a benefit set by a formula, usually based on pay and years of service, and the employer bears the investment risk. A 401(k) pays whatever has built up in your own account from contributions and investment results, so the investment risk and the decisions move to you. Many employers have closed or frozen their pensions over the past few decades and put more money into their 401(k) plans instead.

What happens to the pension you already earned?

You keep it. Federal law generally bars a plan amendment from reducing a benefit you have already accrued, so a freeze or closure stops future growth without taking back what you earned. In a "hard freeze," no one earns new benefits; in a "soft freeze," benefits still grow with pay raises but not with added years of service. Some employers instead close the pension to new hires and let current members keep earning benefits. To keep the employer-funded benefit, you need to be vested under the plan's rules.

The frozen benefit is still paid the same ways as before: as a monthly annuity starting at the plan's retirement age, or as a lump sum if the plan offers one. A lump sum is calculated with IRS interest rates and mortality tables, and higher rates mean a smaller lump sum.

How much can you put into a 401(k) in 2026?

For 2026, you can defer up to $24,500 of your pay into a 401(k). If you are 50 or older, you can add a catch-up contribution of up to $8,000, for a total of $32,500. If you turn 60, 61, 62 or 63 during 2026, the catch-up limit rises to $11,250.

Starting in 2026, employees whose prior-year wages from the employer sponsoring the plan topped $150,000 generally have to make any catch-up contributions as Roth contributions, after tax. Total additions to your account from you and your employer, not counting catch-ups, are capped at $72,000 for 2026.

What does a 401(k) not do that a pension did?

A pension pays a check every month for life, no matter how long you live or how markets perform. A 401(k) does not, unless you turn part of it into income yourself. The Labor Department now requires 401(k) statements to show, at least once a year, two estimates of the monthly income your balance could provide for life, one as a single-life annuity and one as a joint and survivor annuity, which gives you a rough way to compare the two plans.

You also take on the drawdown decision: how much to withdraw each year so the money lasts. Some 401(k) plans now offer annuity or other lifetime-income options inside the plan; check whether yours does.

How can a pension and a 401(k) work together in retirement?

For employees with both, the pension often serves as a base of monthly income alongside Social Security, while the 401(k) covers irregular costs and gives you a reserve. Some people start the pension at retirement and draw down the 401(k) more slowly; others spend from the 401(k) first and delay Social Security to get a larger check later.

Required minimum distributions from a 401(k) or traditional IRA start at age 73 if you were born from 1951 through 1959, and at age 75 if you were born in 1960 or later. When you leave, a direct rollover of your 401(k) or a pension lump sum to an IRA defers income tax, while a payment made to you carries 20% federal withholding.

What should you check if your plan changed?

• The date your pension stopped growing, if it did, and the accrued monthly benefit shown on your benefit statement.
• Your vesting status, and whether the plan offers a lump sum at retirement.
• How much your employer now puts into the 401(k), and what you must contribute to get all of it.
• How close you are to replacing the pension growth you lost, using the lifetime income estimate on your 401(k) statement.

Which Xcel Energy pension formula covers you?

How much pension growth you still earn at Xcel Energy comes down to which formula your hire date put you in. Xcel Energy's pension plan lets non-bargaining employees build a benefit under the pension equity, traditional, account balance or cash balance formula, and lets bargaining employees build one under the pension equity, traditional or cash balance formula, both by date of hire; anyone hired or rehired on or after January 1, 2012 gets the cash balance formula only. That cash balance formula credits 5 percent of pay each year plus an interest credit tied to the 30-year Treasury rate, and is paid as a lump sum at termination or retirement, with an annuity available instead. Vesting takes three years of service for both bargaining and non-bargaining employees, and normal retirement age is 65. Check your hire date to see which formula built your benefit.

What does Xcel Energy put into your 401(k)?

Xcel Energy automatically enrolls newly hired and rehired employees in its 401(k) Savings Plan at 4 percent of pay, stepping the rate up 1 percentage point a year to a 10 percent cap unless you opt out. For employees under the pension equity, account balance or cash balance formula, the company matches 50 percent of the first 8 percent of pay you contribute, capped at 4 percent of pay, paid per paycheck for non-bargaining participants and annually for bargaining participants. Your own contributions, the match, and earnings are immediately fully vested. Weigh that match against your pension formula when deciding how much to contribute.